A mysterious and protracted investigation by the Toronto Stock Exchange and Ontario market regulators of De Beers-owned Archangel Diamond Corporation (ADC) is being kept secret on the apparent legal advice of Robert Shirriff. A Canadian Queen’s Counsel since 1972, and partner in the law firm of Fasken Martineau DuMoulin, Shirriff is a director of the Ontario Securities Commission. Shirriff is also a director of Archangel Diamond Corporation (ADC), and of several other De Beers companies in Canada — De Beers Canada Holdings, De Beers Canada, and Diapros Canada.

Trading in ADC shares — ticker AAD — was suspended by the Toronto exchange on November 9. Three months have now passed, but the stock remains in suspension — without explanation from ADC or De Beers; and without a report of the investigation initiated by Canadian regulators.

The Toronto-listed ADC hit its trading low of 35 cents last year on October 31. As the Bloomberg chart shows, on or about November 1, someone started buying, and the share price rocketed upward by 43%:http://www.bloomberg.com/apps/cbuilder?ticker1=AAD:CN
Trading in ADC has been so rare, and the share so illiquid, the Bloomberg charts show the speculative jump occurred on just four transactions, totaling just 29,200 shares. The biggest of the trades, dwarfing all others for the previous six months, was 19,000. Unlike the earlier big trades on record, this one was a purchase, not a sale.

The next day, November 9, the Toronto exchange announced it had halted trading in ADC stock. The language used indicated that the call was “pending a review of Company affairs by the Exchange.” “Pending news” was the phrase published by Market Regulation Services.

ADC said nothing about the investigation into its affairs. A public statement promised for November did not materialize, except for bulletins posted by the Toronto Stock Exchange on November 9, 14, and 27, confirming the halt to trading. The company website stopped posting news releases six months before, in May of 2007.

With 83.1 million shares on issue, according to last year’s financial statements, the majority of the ADC shares, 59.4%, are owned by De Beers, following their acquisition from an Oppenheimer family holding. Cencan SA is the De Beers vehicle used to hold the shares, and lend ADC money; the most recent loan of which was announced by ADC on November 27. De Beers Canada provides management services.

There is no open report of the non-Beers shareholders in ADC. But the largest besides De Beers appears to be Firebird of New York, whose Global Master Fund appears to hold at least 18%.

Shirriff has declined to tell Mineweb if he holds shares in ADC. Claiming Shirriff was occupied in a hearing of the Ontario Securities Commission, a spokesman said he was uncontactable. Shirriff subsequently refused to answer emailed questions about his parallel directorships.

Shirriff’s role in the murky circumstances surrounding the suspension of trading, and the subsequent investigations, was put in issue, when an ADC shareholder, John Diamond of California, notified the Ontario Securities Commission (OSC) that it was in breach of its legal duties in the ADC case.

In correspondence with the OSC, Diamond said he had “repeatedly requested OSC require that ADC comply with its statutorily imposed reporting obligations under NATIONAL INSTRUMENT 51-102 – CONTINUOUS DISCLOSURE OBLIGATIONS. And disclose a change in the business capital of ADC. Under that authority, NATIONAL INSTRUMENT 51-102, a material change means “a change in the business, operations or capital of the reporting issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the reporting issuer”.

Responding to an OSC claim by letter in January that it had no duty to investigate the ADC suspension, Diamond told the OSC “there has been a change in the business capital of the reporting issuer, ADC. That change is the loss of marketability of the stock of ADC rendering it worthless to all minority shareholders who lack the resources to effect a private sale of their stock. This circumstance is material according to NATIONAL INSTRUMENT 51-102. The loss of marketability of the stock of ADC is the result of the suspension of trading in the shares of ADC by the TSX-V for a considerable duration and the Exchange’s ensuing investigation. This is a material change as defined by the Securities Laws of Ontario.”

According to Diamond, “disclosure to the public and its shareholders by ADC of the reason for the investigation by the Exchange is mandated by PART 7 MATERIAL CHANGE REPORTS. That report is long overdue as nearly three months have elapsed since the date on which the material change has occurred (November 14, 2007), As of this date the halt in trading the shares of ADC continues and the shares continue to be worthless. I again request that the OSC discharge its statutory duties and require ADC to comply with its obligations under NATIONAL INSTRUMENT 51-102 and disclose to the public and its shareholders the reason(s) for the the halt in trading the shares of ADC and an investigation of ADC by the TSX-V.”

According to documents sent to Diamond, Nelson Tang, lead inquiries officer at the OSC, appeared to confirm that the OSC has been investigating the ADC matter since January 4. But Tang warned Diamond on February 7: “the Commission does not generally comment publicly as to the existence, status, or nature of a complaint or an investigation being conducted unless the matter becomes one of public record.”

Diamond explicitly cautioned the OSC by letter to Tang: “I hope that your refusal to enforce the Securities Laws of Ontario is not occasioned by the membership of Robert Shirriff – Lead Director on the Ontario Securities Commission (“OSC”). Mr. Shirriff is a director of Archangel Diamond Corporation (“ADC”). ADC is the entity you have repeatedly refused to order to order to comply with its obligation under the Securities Laws of Ontario.”

Complaint data published by the OSC indicate that, after an increase in enforcement activity between March 2005 and March 2007, the volume of OSC investigations has dropped to the level of a decade ago. Last year, the OSC closed more cases than it opened. The OSC also reports a substantial drop in complaints relating to company self-dealing, and insider trading. The OSC has yet to respond to Diamond’s questions. Tang told Mineweb: “We don’t talk about incoming complaints with third parties.”

Dickman refused to say what reason ADC and De Beers have for the three-month suspension of share trading, except that the the reason, and the non-disclosure, are “in the interests of all ADC shareholders”. He refused to say if he had sought a legal opinion from Shirriff on the suspension and disclosure issues, but he acknowledged discussing the issues with “all the ADC directors”.

Dickman told Mineweb he is not aware that Shirriff is a director on the OSC board. He added that he is not aware of Diamond’s complaints, and that the OSC is investigating the ADC trading halt.

Dickman also declined to answer if he sees a conflict of interest between Shirriff’s role as a securities regulator and his position on the board of a company under investigation.